Controlling Costs in Defamation Proceedings Reducing Conditional Fee Agreement Success Fees

Transcription

1 Controlling Costs in Defamation Proceedings Reducing Conditional Fee Agreement Success Fees Consultation Paper CP1/2010 Published on 19 January 2010 This consultation will end on 16 February 2010

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3 Controlling Costs in Defamation Proceedings Reducing Conditional Fee Agreement Success Fees A consultation produced by the Ministry of Justice. This information is also available on the Ministry of Justice website:

4 About this consultation Duration: From 19 January to 16 February 2010 Enquiries (including requests for the paper in an alternative format) to: Natasha Zitcer Ministry of Justice 102 Petty France London SW1H 9AJ Tel: Fax: How to respond: Please send your response by 16/02/2010 to: Natasha Zitcer Ministry of Justice 102 Petty France London SW1H 9AJ Tel: Fax: Response paper: A response to this consultation exercise is due to be published within 3 months of the closing date at:

5 Contents Foreword 3 Executive summary 5 The proposal 9 Impact assessment 22 About you 34 Contact details/how to respond 35

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7 Foreword Freedom of expression and investigative journalism are fundamental features of our democracy. The Government has therefore recently announced a review of the law of libel, with a working group to consider whether the law of libel, including the law relating to libel tourism, in England and Wales needs reform, and if so to make recommendations as to solutions. I am, however, aware of the growing concern about the high legal costs involved in defamation and some other publication cases brought under conditional fee agreements (CFAs). It is of course important that people are able to sue publishers if they have been defamed, but I believe that the balance has now swung too far against publishers including, for example, scientists and academics. Where defamation claims are funded under CFAs and are successful, the defendant can face having to pay more than double the legal costs incurred by the claimant s lawyers, as well as their own costs. On the other hand, where claimants fail, they can walk away without having to pay a penny to the defendant from their own pockets. There is an inherent unfairness in the current system, which impacts disproportionately on defendants in defamation cases and cries out for reform. The Government has already taken a number of steps to control costs in defamation related proceedings, ensuring that, where After the Event insurance (ATE) is taken out, defendants are notified as early as possible, and given the opportunity to reach a settlement without being liable for the insurance premiums. Defamation proceedings are now part of a mandatory costs budgeting pilot, with Judges scrutinising costs as cases progress to ensure that they are proportionate and within the agreed budget. However, these are only the first steps, and more needs to be done. Sir Rupert Jackson has spent the last year considering in detail the costs of civil litigation. He has now reported to the Master of the Rolls (who commissioned the review), and formally published his report on 14 January. Sir Rupert s review is a remarkable piece of work, which puts forward a broad range of recommendations for reform including for making costs more proportionate while preserving access to justice. The Government welcomes Sir Rupert s report and will consider it in detail. Sir Rupert s proposals on CFAs in particular removing the recoverability of success fees and ATE premiums - are interesting and constructive proposals, which we are considering carefully. However, these recommendations apply to all civil cases where CFAs are used, not just defamation cases. The full implementation of his recommendations would 3

8 see significant changes in the existing costs regime for civil litigation, and would affect a wide variety of individuals and organisations from members of the public to large businesses which bring and defend claims, their solicitors and barristers, judges, claims managers and insurers. Their implementation would therefore require primary legislation. While I accept that Sir Rupert s recommendation could prove a viable option to deal with concerns around CFA costs in the longer term, it will inevitably take some time to assess their full impact. I strongly believe that immediate steps are needed in respect of defamation proceedings, even if they will only serve as an interim solution. For that reason, we are proposing to reduce the CFA success fee that may be charged in defamation and some other publication-related cases. This change can be introduced relatively quickly through secondary legislation, albeit with full Parliamentary scrutiny. It will allow us to protect access to justice for those who are defamed, while reducing the unreasonable and disproportionate impact of costs on defendants. It will also allow to consider how best to achieve Sir Rupert s long term objectives for dealing with CFA costs in the future. The Rt Hon Jack Straw MP Lord Chancellor and Secretary of State for Justice 4

9 Executive summary The Government has for some time been concerned about the impact of high legal costs in defamation proceedings, particularly the impact of 100% success fees, which can double the costs to unsuccessful defendants in cases funded under conditional fee agreements (CFAs). CFAs have increased access to justice for claimants in making it more possible to bring cases. However, the experience over the past decade suggests that in defamation proceedings in particular the balance has swung too far in favour of the interests of claimants, and against the interests of defendants. The current arrangements appear to permit lawyers acting under a CFA to charge a success fee that is out of proportion to the risks involved. Aside from the cost burden this places on the opposing side, this could encourage weaker and more speculative claims to be pursued. The Government does not believe that the present maximum success fee in defamation proceedings is justifiable in the public interest. This is particularly the case because the evidence shows that many more defamation claims win than would substantiate such a generous success fee. This view is supported by Sir Rupert Jackson s report on civil litigation costs published on 14 January The Government has previously consulted on proposals for a scheme on staged recoverable success fees and after the event insurance (ATE) premiums in defamation proceedings to reduce unreasonable and disproportionate costs. However, full agreement could not be reached on the details of the scheme and for that reason the Department was minded not to implement the scheme. Other measures aimed at reducing costs in individual cases were implemented on 1 October 2009, although these did not include specific action on success fees. This consultation paper seeks views on a proposal to reduce the maximum success fee which lawyers can currently charge from 100% to 10% of the base costs. This is an interim measure for dealing with disproportionate costs while the Government considers Sir Rupert s wider proposals which seek to radically change the existing arrangements for all cases where CFAs are used. The proposal in this consultation paper would help reduce the costs for media defendants further and limit the potential harmful effect very high legal costs appear to have on the publication decisions of the media and others. This proposed change is intended to complement changes already introduced on 1 October 2009 in respect of defamation proceedings which were designed to control the costs of individual cases. 5

10 The Culture, Media and Sport Select Committee is expected to conclude its inquiry into press standards, privacy and libel shortly. The Government will take into account any recommendations the Committee might make in their report, as well as Sir Rupert s recommendations in deciding the way ahead for CFAs that better balances access to justice with the need also for proportionate and reasonable costs. 6

11 Introduction This paper sets out for consultation a proposal for reducing success fees in some defamation and some other publication related proceedings funded under conditional fee agreements. The consultation is aimed at those involved in defamation and some other publication proceedings in England and Wales. This consultation is being conducted under the Code of Practice on Consultation issued by the Cabinet Office and falls within the scope of the Code. The consultation criteria, which are set out on page 37, have been followed. Although in the main this consultation follows the Government Code of Practice on Consultation, Jack Straw, the Secretary of State for Justice and Lord Chancellor, has decided that the following deviation from the Code is appropriate in the circumstances: in order to be in a position to implement the proposal as soon as possible (subject to consultation), it will be necessary to shorten the consultation period to four weeks. An Impact Assessment has been completed and indicates that legal representatives, their clients and ATE insurance providers involved in claims in this area of the law, are likely to be particularly affected. The proposals are likely to lead to additional costs or savings for businesses and the public sector. An Impact Assessment is attached at page 22. Comments on the Impact Assessment and the specific questions it contains are particularly welcome. Copies of the consultation paper are being sent to: The Senior Judiciary through the Judicial Office of England and Wales Sir Rupert Jackson Council of Her Majesty s Circuit Judges Association of Her Majesty s District Judges High Court Masters Group Master Hurst, Senior Costs Judge Advisory Committee on Civil Costs Civil Justice Council Civil Procedure Rules Committee Legal Services Board Legal Expenses Insurers Group Law Society 7

12 Solicitors Regulation Authority Bar Council Bar Standards Board Institute of Legal Executives Association of British Insurers Association of Law Costs Draftsmen Confederation of British Industry Citizens Advice Forum of Insurance Lawyers Media Lawyers Association Newspaper Society Publishers Association Trades Union Congress Society of Editors English PEN Better Regulation Commission Office of Fair Trading Equality and Human Rights Commission To ensure that consultation on this proposed amendment to the relevant Statutory Instrument is as effective as possible, the consultation paper will in addition be brought to the attention of all those who contributed to the earlier consultation papers on related issues: Conditional Fee Agreements in Defamation Proceedings Success Fees and After the Event Insurance; and Controlling Costs in Defamation Proceedings. However, the above list is not meant to be exhaustive or exclusive and responses are welcomed from anyone with an interest in or views on the subject covered by this paper. 8

13 The proposal 1. The Government has been concerned for some time about the high level of costs in some defamation proceedings 1. As was recognised in our consultation paper, Controlling Costs in Defamation Proceedings 2, published on 24 February 2009, (t)he Government agrees that there is a problem that should be addressed. We published our response to that consultation on 24 September and set out what action we are taking. The response also indicated that we will be actively considering whether further measures are needed to control costs in this area. The proposal outlined in this consultation paper is our next step. The aim is to set out the case for reducing the impact on costs of the success fees or uplifts which may be charged in defamations proceedings cases which are funded under a conditional fee agreement (CFA). 2. Sir Rupert Jackson published his report on civil litigation costs on 14 January Sir Rupert considered the present CFA arrangements in all areas where CFAs are currently used, their impact on costs and specifically whether additional liabilities (success fees and ATE insurance premiums 4 ) should continue to be recoverable from the opposing party. Sir Rupert has discussed this issue at length with claimants and defendants in various meetings, forums, seminars and conferences, as well as receiving written submissions during the course of his review. Sir Rupert s view is that the costs burden placed upon opposing parties under the existing arrangements is excessive and can sometimes amount to a denial of justice and considers that the proper course is to abolish recoverability and to revert to [style 1 CFAs] as they existed before April In specifically considering the existing arrangements for defamation proceedings, Sir Rupert concluded that additional liabilities including success fees ought to be borne by the party which incurs them and should not be recoverable by the opposing party. Sir Rupert considers, however, that if recoverability is abolished, other measures may be needed to assist claimants to meet the success fees which for which they would be liable. The measures Sir Rupert 1 See Annex A 2 Ministry of Justice Consultation Paper CP4/09, published 24 February insurance taken out (by claimants and defendants) for a premium - to cover the expense of having to pay the other side s costs

14 outlines for defamation and breach of privacy cases include an increase of 10% in the level of general damages and a regime of qualified one way cost shifting. The issues are discussed in detailed in Sir Rupert s final report 6 ; their consideration and analysis by Government will inevitably take some time. While the Government accepts Sir Rupert s conclusion that the existing arrangements for CFAs in this area cannot continue, his recommendation on removing recoverability apply to all areas of civil litigation. This would require consultation and, if the Government is minded to proceed, primary legislation. The additional measures which Sir Rupert considers would be required to facilitate access to justice in the absence of recoverability will require detailed consideration to assess their potential impact. 4. This consultation paper focuses on the short term immediate measure which the Government believes is needed to deal with disproportionate costs in defamation proceedings while it considers in the longer term Sir Rupert Jackson s recommendation for removing recoverability of success fees and ATE premiums. 5. In deciding which proceedings should be covered by the proposal in this consultation paper, we propose to use the following definition of defamation proceedings, used in the amendments to the Civil Procedure Rules 7 introducing the 42 day cooling off period 8 with effect from 1 October 2009: defamation proceedings means proceedings for (a) defamation; (b) malicious falsehood; or (c) breach of confidence involving publication to the public at large. All further reference to defamation proceedings in this paper should be read as including all types of case covered by the above definition. Why does the current system need reform? 6 Chapter 32 7 In July See paragraph 14 below for the measures implemented on 1 October 10

15 6. This section does not seek to set out comprehensive details of the current arrangements and the need for reform as Sir Rupert s report does this thoroughly and persuasively. However, a brief outline is included below to explain how the proposal in this consultation paper fits within the existing regime and with Sir Rupert s proposals. 7. The usual costs shifting rule in civil proceedings is loser pays : the unsuccessful or losing party is required to pay not only that party s own costs, but also the reasonable costs of the successful or winning party. Prior to the Access to Justice Act 1999 the success fee and ATE insurance premium were not recoverable from the unsuccessful party in this way; but sections 27 (success fees) and 29 (ATE insurance premiums) of the Access to Justice Act 1999 changed that by providing that a success fee and ATE insurance premium due under a CFA were to be treated as part of the costs recoverable under an order for costs. These sections came into force in April In civil cases where CFAs are permitted, including some defamation proceedings, the maximum success fee of 100% is regularly charged. The Conditional Fee Agreements Order enables the Lord Chancellor to prescribe the maximum permitted percentage success fee for any description of proceedings. The current maximum percentage of 100% was intended to maximise access to justice through CFAs for all cases with at least a 50% chance of success. The objective was to enable claimant lawyers to balance risk: to cover the costs of cases that failed with an uplift or success fee on those that won. This success fee was made recoverable from the opposing side in 2000, along with the premium on ATE insurance. 9. However, this approach of balancing risk across a large number of cases - is not effective in an area when the number of cases is relatively small and the vast majority of claims succeed. 100% success fees cannot be justified when the risk of losing any cases is low. We consider that this currently is the situation with defamation proceedings. 10. Access to justice covers not only the ability of claimants to bring reasonable actions; it also covers the ability of defendants to be able 9 SI 2000/823 (made under section 58 of the Courts and Legal Services Act 1990 as amended by the Access to Justice Act 1999) 11

16 properly to resist those claims which should not succeed and at proportionate cost. As CFAs are available to everyone regardless of their financial means, the media have for some time questioned the use of CFAs with success fees (and ATE) by those who can afford to pursue litigation, and therefore do have access to justice without them. 11. Data was provided by the Media Lawyers Association to Sir Rupert Jackson based on a sample of 154 libel and privacy cases against the media which were resolved by settlement or judgment in 2008 involving nine national newspaper groups, broadcasters and news agencies as well as local newspaper publishers of these (17.5%) were brought under CFAs, but that figure rises to 11 out of the 16 cases (almost 70%) where overall costs (sought by the claimant and the defence) exceeded 100,000. Almost all of the 154 cases settled before trial; none of the claims failed. Only three went to trial, all of which were won by the claimant. Of the three that went to trial, two were funded under a CFA. Although it is difficult to obtain data on the individual costs of defamation cases (there are relatively few of them, brought by a relatively small number of solicitors firms), it is clear that the vast majority of defamation claims succeed, and that the more expensive cases tend to be funded under a CFA. 12. This has wider implications. National media in general and regional and local media in particular may feel that they cannot afford the costs involved in defending a claim brought under CFA, given the risk of significant costs that they might have to pay if they lose. The media say that this puts them under huge commercial pressure to make an early settlement in respect of an allegedly defamatory publication, which in their view was legitimate to publish. In the media s view this has a chilling effect on how the media operate; they will be less keen to defend cases which they would otherwise justifiably defend, purely because of the costs involved. In turn, they may be less willing to publish articles - which in the public interest ought to be published because of the fear of potential costs involved if a claim is brought. The threat of defamation proceedings and the costs involved may also have a harmful effect on freedom of expression more generally, for example in relation to scientific and academic debate. 13. In view of the concerns which have been expressed about the possibility that our libel laws are having a chilling effect on freedom of 10 Review of Civil Litigation Costs: Preliminary Report, Appendix 17, published

17 expression, the Justice Secretary is setting up a working group to consider whether the substantive law of libel, including the law relating to libel tourism, in England and Wales needs reform, and if so to make recommendations for solutions. The working group is intended to have an intensive, short term focus and has been requested to make recommendations by mid-march. The scope of the group s considerations will extend to all aspects of substantive libel law in England and Wales, but will exclude issues relating to costs in defamation proceedings in view of the work that is already underway. 14. The Government made some progress recently in reducing costs in defamation cases 11. On 24 September, the Government announced 12 its response to the consultation, Controlling Costs in Defamation Proceedings. It followed extensive consultation with the Civil Procedure Rule Committee and representatives from the media, legal profession, insurance industry and judiciary. The response sets out the first raft of measures aimed at making defamation and other costs in defamation proceedings more proportionate and reasonable from 1 October 2009: early provision of more detailed information to the other party if ATE insurance has been taken out a 42 day cooling off period where, if the defendant admits liability and this leads to a settlement, the ATE premiums will not be recoverable from the defendant a mandatory cost budgeting pilot for defamation proceedings, aimed at ensuring that costs are proportionate and within the agreed budget, with close judicial supervision. 15. Jack Straw, the Justice Secretary, in announcing the above reforms, indicated that the Government would be actively considering whether further measures are needed to control costs in this area. However, the Justice Secretary was minded to await the report from Sir Rupert when considering the next steps. Sir Rupert s report echoes the need for reform as outlined above. The proposals to reduce success fees or to abolish their recoverability are the next interim step the Government wishes to undertake while considering the long term objective recommended by Sir Rupert or reverting to the pre See Annex A for previous measures and consultation

18 position by removing recoverability of additional liabilities including success fees. 16. It is also worth noting that the Culture, Media and Sport Select Committee is currently conducting an inquiry into press standards, privacy and libel. The Committee is expected to report shortly and the Government will consider the report and any recommendations it may contain in respect of costs and other issues. The proposal 17. The current law allows for maximum success fees of 100%, which doubles the cost of legal fees. Although 100% is the maximum level which is prescribed, 100% is regularly applied and appears to have become the norm. Previous proposals to control recoverability of success fees and ATE via staging proved unsuccessful Taking into account the fact that in the data sample provided by MLA none of the claims were successfully defended at trial, it is clear that, in defamation cases, 100% success fees are too high. This is compounded by the costs of ATE (which a claimant takes out to insure himself against having to pay the defendant s costs should he lose; the premium in these cases (which can amount to 65% of the sum insured in defamation cases) is currently recoverable from the opposing defendant as well as a 100% success fee. 19. In theory, the justification for 100% success fees is to allow lawyers to recover costs that would accrue from a privately paying client on the basis of taking two cases each with a 50:50 prospect of success, and winning one and losing the other. But it is known that, in defamation cases, claimants are winning a much higher proportion of cases suggesting that they have a much higher than 50% chance of success. Indeed the figures for relative proportions of successful and unsuccessful claims above indicate not a justification for 100% success fees, but rather the abolition of success fees in defamation proceedings altogether. 20. The impact of success fees could be lessened by reducing the success fees that may be charged or by limiting or abolishing the recoverability of success fees from the opposing party. Sir Rupert s report focuses on tackling recoverability, an issue to which the 13 See background and history - Annex A 14

19 Government is giving detailed consideration with a view to tackling disproportionate costs in the longer term. In the interim, however, the impact of success fees can be reduced by amending the Conditional Fee Agreements Order 2000 which currently prescribes the maximum level at 100%. A draft Order to achieve this is included at Annex B. The Order requires the approval of both Houses of Parliament to take effect. 21. The Government is determined to level the playing field between the claimant and defendant in defamation proceedings and believes that there is a strong case for taking action now. 22. We therefore invite views on reducing the impact maximum success fee in defamation proceedings cases to 10% as an interim measures while the Government considers Sir Rupert s recommendation for removing the recoverability of success fees and ATE insurance premiums as the long term solution for dealing with high costs in CFAs. 23. We believe this measure is justified given the relatively small number of cases which would be affected and would help ensure that costs in these proceedings are more proportionate. It is consistent with our policy to ensure that the costs in all cases are reasonable and proportionate and keeping the existing arrangements for costs and funding under review QUESTIONS Q 1: Do you agree that the Conditional Fee Agreements Order 2000 should be amended to reduce the maximum success fee to 10% in some other defamation proceedings? If you disagree please give your reasons. Q 2: What evidence would you offer in support of a maximum success fee in excess of 10%? Q3: If you do not agree with the proposal on reducing success fees to 10%, what evidence would you offer in support of maintaining the status quo? Additional questions are included in the impact assessment, see page

20 Annex A CFAs and defamation proceedings background and history 1. The Courts and Legal Services Act 1990 (CLSA) allowed CFAs to be enforceable in England and Wales. Section 58 of the CLSA (as amended by section 27 of the Access to Justice Act 1999) set out the mandatory requirements for CFAs. The first Order in made it possible for CFAs to be enforceable in personal injury claims, insolvency proceedings and applications before the European Court of Human Rights. In this was extended to all types of case except criminal and family. 2. CFAs are used primarily in litigation before the courts, where rights of audience and rights to conduct litigation are restricted to qualified legal professionals such as barristers and solicitors. CFAs operate on the principle that a solicitor or barrister ( lawyer ) will act for a client if he thinks there are sufficient prospects of success. If the case is lost, then the lawyer will not be paid. If the case is successful, the lawyer will be able to claim an uplift on his normal fees. This uplift is also known as the success fee. This maximum permitted uplift that lawyers can charge their clients is currently prescribed 16 at 100%. An After the Event Insurance (ATE) market has developed to protect claimants against having to pay the opponent s costs if the case is unsuccessful. 3. CFAs can act as a mechanism for filtering out weak or unmeritorious claims. Before entering into a CFA a lawyer would assess the merits of a case, as the lawyer bears the risk of not being paid if the case is unsuccessful. This encourages lawyers to take on only those claims they think are meritorious and have a 50% or higher chance of success. 4. Under the scheme introduced in 1995, while the lawyer s normal fees could be recovered from the opposing side, the claimant was responsible for paying the uplift and ATE insurance premiums which were usually met from the damages recovered. In April 2000, following the reforms under the Access to Justice Act 1999, the Government changed the way in which personal injury cases were funded: personal injury cases were removed from the scope of legal aid due to the availability of CFAs. At the same time, changes were 14 The Conditional Fee Agreements Order 1995 (S.I 1995/1674) 15 Conditional Fee Agreements Order 1998 (c) 16 The Conditional Fee Agreements Order 2000 (SI 2000/823) 16

21 introduced in respect of CFAs to make them more attractive to lawyers in most categories of case including personal injury. The reforms provided for the uplift and ATE insurance premiums to be recoverable from the unsuccessful party, in the same way as other costs. The intention was to: ensure that the compensation awarded to a successful party is not eroded by any uplift or premium - the party in the wrong will bear the full burden of costs; make conditional fees more attractive, in particular to defendants and to plaintiffs seeking non-monetary redress - these litigants can rarely use conditional fees now, because they cannot rely on the prospect of recovering damages to meet the cost of the uplift and premium; and discourage weak cases and encourage settlements. 5. If parties cannot agree on costs under CFAs, it is generally for the court to decide what constitutes a reasonable level of success fee that may be recovered from the unsuccessful party; but in certain types of personal injury cases the recoverable success fee is fixed depending on the stage at which the case is concluded. 17 For example, for a case which concludes before trial a recoverable uplift of 12.5% is set for Road Traffic Accident claims and 25% or 27% for Employer s Liability Claims. The recoverability of success fees (up to 100%) from the other side has caused concerns in the public and private sector including in defamation and clinical negligence claims. 6. A successful party to litigation may only recover the costs of the litigation from the unsuccessful party if and to the extent that a court orders that he should do so. Whether an order for costs is made, and if an order for costs is made the amount of costs that are to be paid, are matters determined by the court in the exercise of its discretion and in accordance with the provisions of the Civil Procedure Rules 1998 ( the CPR ). The CPR are delegated legislation made under the provisions of the Civil Procedure Act The CPR apply to most litigation before the civil courts. The material provisions of the CPR which relate to such orders are contained in CPR Parts 43 48, in particular at CPR Part 44 (which sets out the general rules applicable when an order for costs is sought and made) and CPR Part 47 (which sets out the rules applicable in relation to the detailed assessment of costs, a process by which the amount of costs claimed by the successful party is scrutinised by the court). 17 RTA claims, Employers Liability Accident claims and Employers Liability Disease claims 17